Republicans and Democrats in the Senate have both expressed
interest in a bill that could make it easier for millions of
Americans to refinance home loans, although they are circling
each other warily as they try to determine their first steps.

"This is the one chance Washington could show the country
that they can throw blue and red out the window," said Jason
Gold, a senior fellow at the Progressive Policy Institute, a
left-leaning think tank. "There is hardly a congressional
district out there that would not see at least 10,000 households
benefit. It's a win."

The bill would make it easier for borrowers with loans
backed by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) to
refinance by allowing them to seek out a new loan servicer and
by easing loan-to-value restrictions.

It would build on the government's main refinance initiative
- the Home Affordable Refinance Program - which was widened last
year to reach homeowners who owe more on their mortgages than
their homes are worth but who are current on their payments.

The legislation aims to reach some of the more than 17.5
million U.S. homeowners who pay more than 5 percent interest on
their Fannie- or Freddie-backed loans. Rates on new mortgages
are currently at record lows below 4 percent.

It would go beyond HARP by preventing the two
government-controlled mortgage firms from charging certain
risk-based fees and by eliminating extra appraisal costs.

READING THE TEA LEAVES

While the politics could align in the Democrat-led Senate,
legislation would face a tougher road in the
Republican-controlled House of Representatives. Many Republicans
are leery of housing relief programs that could be costly for
taxpayers.

Even in the Senate, there are significant procedural hurdles
and little time left on the legislative calendar. "It has a
pulse, but it’s far from certain that it will get done," said
Brian Gardner, an analyst at Keefe, Bruyette & Woods.

Senate Banking Committee Chairman Tim Johnson is worried
Republicans will try to load up the draft bill with unrelated
provisions, an issue he wants resolved before the committee
holds a bill-writing session.

"We have worked together in the past markups to keep
amendments to those related to the underlying bill," Johnson
said last week. "I hope that my colleagues will agree to
continue this approach."

But Senator Richard Shelby, the committee's top Republican,
wants Johnson to permit any provision on housing finance to be
considered as an amendment.

"Senator Shelby wants to work with Chairman Johnson and
Senate Democrats to see whether we can reach an agreement on
housing legislation. Making that determination requires a
deliberative process. It starts with an open markup," Shelby
spokesman Jonathan Graffeo said.

STARTING OVER

The panel would work off a bill introduced by Democrats
Robert Menendez and Barbara Boxer.

In addition to making it easier to qualify for refinancing,
the bill would limit the risk a lender might be required by
Fannie Mae or Freddie Mac to buy back a mortgage if the
underwriting is found to be faulty - a provision that could
encourage lender participation.

"There’s the root of a good idea in this bill. Done the
right way, it would be helpful," Senator Bob Corker, a
Republican on the banking panel, told Reuters. "I've told the
chairman that if we do have a markup that I would only have
amendments to the actual underlying text."

Mark Zandi, chief economist at Moody’s Analytics, estimates
that, combined with other government refinancing initiatives,
the bill would result in about 2 or 3 million borrowers winning
new loans, helping households save as much as $7 billion
annually in mortgage payments. So far, around 1.2 million
homeowners have refinanced through HARP.

Senate lawmakers are aiming to find an agreement that could
lead to Senate passage before the congressional August recess.

What would happen next is unclear.

Gardner said it was unlikely the House would be willing to
take up the Senate bill. In his view, a majority of House
members would not see any political advantage to an up or down
vote on the measure.

In that case, they would have to start drafting their own
legislation from scratch for any hope of an eventual compromise
measure emerging.

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